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Japan Goes Global as the U.S. Looks Inward

(Bloomberg Opinion) -- If a random American were to be asked “Which countries are at the forefront of globalization?” or “Which countries are the guardians of the liberal order?,” it seems unlikely that Japan would be among the countries they named. The Land of the Rising Sun is typically thought of as a closed-off country, with little immigration, a protectionist trade policy and inward-focused companies that ignore global consumers. Yet as the U.S. retreats from the world stage to focus on its own political divisions and rightist populism surges in Europe, Japan is taking the high road. Call it globalism Japan style.

On trade, Japan just closed a deal with the European Union to eliminate almost all tariffs between them. It’s the biggest commercial agreement in EU history. Meanwhile, Japan is still trying to negotiate a version of the Trans-Pacific Partnership — from which the U.S. withdrew under President Donald Trump — as well as another huge trade agreement with China, India, South Korea and other nations. Together, those trade deals would mean that about 80 percent of Japan’s trade would be covered by free trade agreements.

On immigration, too, Japan is assuming a decidedly more globalist stance. Though it doesn’t take nearly as many immigrants as countries like Canada, the number is growing:

The government has implemented a fast track for skilled immigrants to apply for permanent residency after only one year in the country, while another new rule will greatly expand the number of guest workers allowed. Ethnic Chinese and Indian neighborhoods are already forming in Tokyo.

Why is Japan suddenly opening up? The leadership of Prime Minister Shinzo Abe certainly has something to do with it. But more generally, the country is simply coming to realize the value of a new approach.

A new book from the Asia Pacific Initiative, a think tank, attempts to articulate this approach. Entitled “Reinventing Japan: New Directions in Global Leadership,” and edited by veteran journalists Yoichi Funabashi and Martin Fackler, the book is a series of essays exploring ways that Japan can take advantage of its strengths to engage with the world. The unifying idea is of Japan as an incubator — a country whose relative geographic and economic isolation can give rise to unique ideas that can then be rolled out on the world stage.

In terms of industries, “Reinventing Japan” suggests leveraging Japan’s strengths in art and design. A unique cultural and artistic sensibility has allowed Japan to create pop cultural products beloved by the world, while the Japanese system for training and funding architects has made it a leader in that field as well. In both cases, Japanese companies should recognize the vast appeal that they hold, and make vigorous attempts to win global market share. Design lies at the left end of the so-called smile curve, which describes which parts of a supply chain capture the most value — in other words, design makes money.

“Reinventing Japan” also discusses Japan’s advantages in laboratory science, as well as its developing startup ecosystem. Closer cooperation between universities and industry, which had previously been walled off from each other, is beginning to create a pipeline from invention to innovation to products and profits. Such a cultural change may be similar to the change produced by the Bayh-Dole Act of 1980 in the U.S., which allowed universities to retain ownership of intellectual property created with federal funding. Japan’s large number of elderly people, world-class health care system, and leadership in cutting edge biological sciences may enable the country to become a pioneer in biotech and products oriented toward the world’s growing population of old people.

These are all very good ideas. Of course, they won’t be enough. “Reinventing Japan” uses these examples to build a convincing case that Japan can exploit its unique qualities to carve out new niches in the global marketplace. But building new strengths won’t be enough to revitalize Japan’s vast array of older, established export industries in electronics, machine tools and autos. Nor will it be sufficient to overhaul the country’s sometimes lagging service sectors — finance, insurance, retail and the like.

If it’s going to truly assume the mantle of global leadership, Japan is going to need to shore up its weaknesses in addition to cultivating its strengths. The Japanese corporation, in many ways the central institution of Japanese society, must be reformed. The U.S., with its emphasis on corporate buyouts and outsourcing, may not be the best model for that overhaul — instead, Japan will have to come up with innovative new business institutions that fit its own culture.

That’s easier said than done, of course. But there are good signs. Japan Inc.’s big weaknesses — an office culture that encourages long hours of unproductive busywork, a labor system that discourages mid-career hiring and underutilizes women, a dearth of mergers and acquisitions, and corporate governance dominated by change-averse management — have already come under vigorous attack from reformers in the government and from a growing private-equity industry.

Between increased openness, corporate and social reform, and a recognition of its hidden strengths, Japan isn’t laying down and succumbing to graceful decline. At a moment when many advanced democracies are stumbling, Japan is yet again finding its own path forward.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.